“David Cameron has played a blinder and he’s done the only thing that it was really open for him to do” London mayor Boris Johnson speaking to the BBC after British prime minister David Cameron “vetoed” the Fiscal Compact in December 2011
The position on here is to advocate a “no” vote in the forthcoming referendum on 31st May.
So far, four countries have ratified or partially ratified the Fiscal Compact, the agreement which will be subject to a referendum here in just over a week – the four are Greece(completely ratified) and Poland, Portugal and Slovenia whose parliaments have ratified the Compact which is just now awaiting presidential assents. There are 27 countries in the EU, of which 17 are in the EuroZone. The heads of state of all EZ countries have agreed to the Compact, as have six of the eight non-EZ countries. The twocurrent dissenters are the UK and the Czech Republic, the UK having reached its decision after marathon all-night talks on 8/9th December 2011 in Brussels. This blogpost examines the reason for the UK’s abstention.
The Fiscal Compact has been described by its supporters as being primarily a document to encourage “good house-keeping”, as well as to give access to the new emergency bailout fund, the ESM. With such advantages on offer, why would a country like the UK decide to abstain from the agreement, in a way which was considered aggressive last December? Are there any lessons for Ireland from the UK’s abstention?
Question : Why did British prime minister, David Cameron veto what on 9th December 2011 was going to be otherwise a unanimously accepted Fiscal Compact?
Answer: Because he couldn’t obtain assurances and safeguards in respect of theUK’s critically important financial services industry
David Cameron was concerned that proposed financial regulations were not in the UK’s interests. Nicolas Sarkozy clarified that financial regulations mean the “regulation of financial services” when he said “we were not able to accept (the British demands) because we consider quite the contrary – that a very large and substantial amount of the problems we are facing around the world are a result of lack of regulation of financial services and therefore can’t have a waiver for the United Kingdom”
But hang on a second, Ireland has a very important financial services sector, not just for the domestic economy but in the Irish Financial Services Centre in Dublin where 400+ of the world’s biggest financial institutions conduct business which generates 25,000 jobs directly plus income into the local economy plus taxes. Why would David Cameron be so concerned with the Fiscal Compact for theUK’s financial services sector whilst we seem unbothered?
Channel Four news reported that “the main bone of contention for Mr Cameron was the reform plan’s proposal of a Europe-wide tax on all financial transactions – a so-called Tobin tax. He made it clear in the days before the EU summit that Britain would not negotiate this issue, and that protecting the City of London was paramount”
Of course the ESM is being set up for the benefit of, and is being funded by, EZ countries and the UK has its own currency which it has augmented by nearly GBP 300bn in so-called quantitative easing in its GBP 1.5tn economy since their crisis began in 2007.
Still, the UK is not governed by idiots and they’re saving our behinds with €4bn of a bilateral loan. So it is noteworthy that the prospect of a tax on financial transactions was considered so important that the UK risked a rift with Europe.
Thus far, it seems that the “yes” campaigners have not been challenged on this matter. Former taoiseach and Fine Gael leader John Bruton who has been chairman of IFSC Ireland since 2010, an organisation which promotes the IFSC internationally has come out in favour of the Fiscal Compact, but has not, to the best of my knowledge, spoken about the reservations which led to the UK being isolated with the Czech Republic with respect to the Fiscal Compact. The fear would be that Ireland’s financial services sector which is world-leading in areas such as aircraft leasing, would find itself at a disadvantage to London, and that we would see the export of jobs, income and taxes in a sector which is regarded as extremely valuable.
By the way, the other dissenter, the Czech Republic, is not signing up to the Fiscal Compact because it believes the Fiscal Compact makes political changes to the operation of the EU which mean that the Czech Republic’s voting power is diluted. According to the Czech government’s Englis-language website “Article 7, or the so-called voting cartel, is, in and of itself, a massive change in the operation of the EU, which the Prime Minister is not in favour of as a matter of principle, as it commits the state to vote for European Commission proposals even against its will.”
Article 7 says “While fully respecting the procedural requirements of the Treaties on which the European Union is founded, the Contracting Parties whose currency is the euro commit to supporting the proposals or recommendations submitted by the European Commission where it considers that a Member State of the European Union whose currency is the euro is in breach of the deficit criterion in the framework of an excessive deficit procedure. This obligation shall not apply where it is established among the Contracting Parties whose currency is the euro that a qualified majority of them, calculated by analogy with the relevant provisions of the Treaties on which the European Union is founded, without taking into account the position of the Contracting Party concerned, is opposed to the decision proposed or recommended.”
One small quiz:
Who has worst running state finances?
Greece
Italy
Spain
Portugal
Ireland
UK
Just estimate!
@someone, by “state finances” it seems you are not referring to debt as Greece, Italy, Ireland and Portugal are European leaders. You’re probably not referring to unemployment either where the UK’s is 8% and Ireland’s is 14%.
As regards deficits, yes the UK’s is about the same as Ireland’s and last year we were the bottom of class in Europe.
The outlook for the UK according to its independent Office for Budget Responsibility is
“GDP growth from 2012-2015 at 0.8%, 2%, 2.7% and 3%, deficit of 8.3%,5.8%,5.9%,4.3%, debt:GDP of 72%,75%,76%,76%, unemployment rate of 8.7%, 8.6%, 8.0%, 7.2%, house prices of -0.4%,0.1%,2.5%,4.5% and inflation of 2.8%,1.9%,1.9%,2%.”
http://namawinelake.wordpress.com/2012/05/15/uk-commercial-property-sees-third-consecutive-month-of-declines-in-april-2012/
Reblogged this on Free Ireland and commented:
Britain has more sense than to sign up for a pact that bring no benefits but austerity and interference from Germany in our affairs, will lead to further asset stripping of the Irish Heritage. That the Irish Government should require the EUSSR to dictate ‘good housekeeping’ methods, and is prepared to admit that they need this guidance is appalling! No one with any modicum of sense could see this fiscal union as just another step to total loss of sovereignty.
above last comment corrected
” could see this fiscal union as just another step ” should have read ” could see this fiscal union as other than just another step…”
http://www.independent.ie/opinion/analysis/elaine-byrne-ifsc-living-by-its-own-rules-and-not-in-the-real-world-3101326.html
Elaine Byrne had a good article on this topic.
@Eamonn, thanks. So a 0.01% levy on financial transactions would raise €500m a year which implies the value of transactions is €5tn a year, or 30 times our GDP! And what sort of transactions are these? Could they just as easily be executed from Gibraltar or Malta?
And Dublin doesn’t compete with the City of London for financial services?
“And Dublin doesn’t compete with the city of London for financial services”
Agree this doesn’t seem plausible but she gives her explanation below.
“Most of the IFSC’s activity is in fund administration, not the high-frequency speculative trading which the FTT seeks to curb”
But this contradicts the contention that we could raise €500 million a year if the high frequency speculative trading doesn’t happen here.
I think the majority of the high frequency spec trading done mainly by computers using algorithms is done in the UK and that is the reason UK are so set against this tax that many claim will result in more stable financial markets.
I think the European States are working in a situation where businesses are able to play them off one another for the last 20-30 years in order to reduce the amount of taxes collected from corporates. The trends have been very clear, burdens have been shifting away from corporate taxes to personal taxes. I think the common consolidated tax proposals are a desire to set this trend in reverse. They are trying to end the race to the bottom.
@ Eamonn You are completely correct – CCTB would be a huge step in correctly allocating taxation to the place where the underlying transaction actually happens.
The German tax authorities face a consistent threat from their larger businesses that they will move their place of residence. If you look at stock exchange listed companies, many have converted themselves into S E structures to enable a quick move across borders. S E companies are practically unknown in Ireland.
Some years ago I remember speaking to a German tax Inspector on a bilateral visit to the Irish Revenue, who was amazed that we had none at the time.
With the level of cross border transactions, it is time for co-ordination of the taxation of trans national entities.
Basically, the Irish government is being blackmailed by the ECB on the Fiscal Compact in the same manner as they were on the bond bailout. It is a form of Pay to Play. The elites and those who do their bidding convince the voters that they have the most to lose with a no vote when in fact they are the real losers as the system just keeps rolling down the road as always. The vote has little to do with EU fiscal policy or Czech “democracy” and everything to do with keeping the elites in power via EU benevolence. The only way to break the chains of servitude is to vote no and go Icelandic. By the way, Mexico recently sold ten year bonds with a yield of 3.71%. So much for eternal damnation.
https://mninews.deutsche-boerse.com/content/repeat-mexico-issues-10-yr-2b-22-global-bond-yield-371
Maybe they don’t want this kind of “supra judical” body in their country (Whereas we have no choice – apparently). What place has this type of organisation got in a democratic state?:
European Stability Mechanism:
ARTICLE 32
Legal status, privileges and immunities
1. To enable the ESM to fulfil its purpose, the legal status and the privileges and immunities set out in this Article shall be accorded to the ESM inthe territory of each ESM Member. The ESM shall endeavour to obtain recognition of its legal status and of its privileges and immunities in other territories in which it performs functions or holdsassets.
2. The ESM shall have full legal personality; it shall have full legal capacity to:
(a) acquire and dispose of movable and immovable property;
(b) contract;
(c) be a party to legal proceedings; and
(d) enter into a headquarter agreement and/or protocols as necessary for ensuring that its legal status and its privileges and immunities are recognised and enforced.
3. The ESM, its property, funding and assets, wherever located and by whomsoever held, shall enjoy immunity from every form of judicial process except to the extent that the ESM expressly waives its immunity for the purpose of any proceedings or by the terms of any contract, including the documentation of the funding instruments.
4. The property, funding and assets of the ESM shall, wherever located and by whomsoever held, be immune from search, requisition, confiscation, expropriation or any other form of seizure, taking or foreclosure by executive, judicial, administrative or legislative action.
5. The archives of the ESM and all documents belonging to the ESM or held by it, shall
be inviolable.
http://www.efsf.europa.eu/attachments/esm_treaty_en.pdf
I heard Gilmore/Kenny etc on about the treaty and how it is needed to attract investors and jobs….then yesterday I heard an American say
“Why would I ship jobs and create wealth in a country that then throws it into a black hole and makes me look bad’
These business people have to say to someone….
“Hey Joe. I need you to relocate with your wife and kids to (insert country of your choice here) to help set up our new HQ”. (remembering of course not everyone is Pfizer or Intel)
Real people in the real world make these decisions.
I very seriously doubt if Ireland’s culture of offering corporate tax giveaways while regular people suffer is a magnet for business minded investors. These people are too smart for that.
NWL, you lost me there.
Saving the cowboys in the financial services industry is the exact opposite of good governance.
The Sarkozy quote is spot on, and the Square Mile will have its day once the US political system gets pissed off with repeated disasters like AIG/MF Global/JP Morgan – all executed in London.
I work in the UK and pray we don’t get locked up alone to fight these bastards.
I have to say that in my view this post falls below the usual high standards on this site.
The link between the Fiscal Compact and the financial transaction tax is not made clear in the post.
But as far as I know, there is no real connection. The Fiscal Compact does not make the tax more or less likely nor does it increase the power of the EU to introduce such a tax.
Instead, if I am correct ,(and I could well be wrong), the UK used the negotiations over the Fiscal Compact as an opportunity to effectively re-negotiate other treaties so as to allow the UK to opt out of certain EU financial laws.
Furthermore, for party political reasons, the tory government was unwilling to sign a treaty increasing integration – and at very least they needed a major concession to UK interests in order to support it.
In other words the benefits or otherwise of the treaty have little to do with the financial transacctions tax or the UK’s refusal to sign it
It is good to see NAMA Wine Lake so concerned to defend the rapacious financial services industry from a transaction tax. Dressing this up as a concern for jobs is a bit threadbare. Just as any port in a storm, any stick to beat the treaty with. There is no doubt that the devil can cite scripture…. It is remarkable how Mr. Hollande’s policies can sometimes be invoked as positive reasons for voting “no” and sometimes as negative reasons.
@sas, you may get what appears to be your wish to see a financial services tax sooner rather than later after developments in Brussels today where the European Parliament voted in favour of implementing this tax. It still has to get past the European Council, but it is the case the UK cited the risk to its financial services sector as the sole/primary reason for its abstention/veto last December 2011.
http://www.irishtimes.com/newspaper/breaking/2012/0523/breaking40.html
Just to remind you of the Minister for Finance Michael Noonan’s position
““If, as some countries have proposed, the tax was to be brought in under enhanced co-operation arrangements, we would fear we could lose business to London, since the UK is strongly opposed to this initiative,” Mr Noonan said in response to a question on the tax by Fianna Fáil leader Michael Martin last February.”
I don’t think I said or implied anything about my own position on the tax but, and I think your blog is great, you need to say if you are in favour or against and if you want to use tax to protect Irish jobs, that’s not a cab you can take and drop off at your convenience. Follow the logic through. And, by the way, do you also favour leaving the IFSC to light regulation because though the overall effects of same might be beneficial, its not conducive to maximising jobs there.
But the point that amuses me is that I hear from the “no” spectrum this:
M. Hollande is the US cavalry, “good guy”: (a) favours growth not austerity – not much visibility mind you around his commitment to balance the budget in reasonably short order; and (b) election and uncertainty it creates is reason to postpone referendum (code for almost certainly reduce its chances of passage).. So we need to vote no to add to his momentum.
M. Hollande as Dracula; “bad guy” wanting to impose transaction tax on our plucky IFSC. So we need to vote no to put a brake to his gallop.
If I may so, though you have in your weekly reviews presented the debate fairly, just now its a case of harness every bit of fuel to the no argument even when some of the fuel doesn’t seem to me to sit well with your overall perspective on life.
Beir bua and keep up the (generally!) great work.
@Daire, without meaning to give you a forked answer, the position here on a financial services tax is similar to the position on our general corporation tax rate of 12.5% : maintain the status quo unless a change will generate greater benefit. I am satisfied that with the corporate tax rate that the benefit from jobs, technology and knowhow and general investment outweighs the value of an increase in the rate. I can’t honestly say I know the detail of the calculation in respect of a financial services tax.
But what I do know, and this is the point of the blogpost above, is that our neighbour which has a colossal financial services sector believed the provisions of the Fiscal Compact were such that it was better to abstain/veto and incur the animosity of most European countries than to fall in line with the majority.
I hope that makes the position clear.
I understand the Government’s stance is to oppose any introduction of a financial tax unless it applies throughout the EU, because of the fear that a tax in Dublin but NOT in London will lead to a haemorrhage of jobs and investment from the IFSC and elsewhere to London or Douglas or St Helier.
Not really. I’ll stop after this but if you are representing Mr. Cameron’s reasoning as running something like this: “It really goes against my grain and I’m going to take a lot of flak at home everywhere outside London for incurring the animosity of my chers collegues in Europe, but because of the possibility of this damn financial tax being accelerated by the treaty, for that reason and that reason alone, I’m going to have to pass”, I’m afraid its just not credible and, you know what, I think you’re intelligent enough not to believe that but for that alleged threat, Mr. Cameron might have done otherwise. The acrimony of his chers collegues is as nothing compared to the acrimony of the 1922 committee. Mr. Cameron didn’t sign because he would have had only domestic downside, either have a referendum which he would lose or get off the hook of having pledged to have a referendum. Not great either. Financial services was an alibi rather than a reason. And, as a non-Euro state, the referendum was a bit peripheral to his interests anyway.
And, isn’t there something just a bit strange about highlighting the ostensible position of the one country that did not sign up to the treaty (as you described) it to support a no vote by us. Will you review with the same balance the reasons why other countries signed up that might lend support to the case for us voting yes?
I suppose all i’m saying is that you left your normal balance to one side and diluted your moral currency. Desired conclusion should flow from the argument. In this case, it went the other way around. Procrustes and all that.